By understanding and maximizing its strengths and minimizing waste, Sadafco is going from strength to strength. CEO Wout Matthijs discusses the challenges and opportunities in Saudi’s food industry, his company’s ‘top-of-mind’ brand building capacity, its investments in eco-friendly production, and its Saudization results.
Saudi Arabia currently imports more than 85% of its total food and beverage requirements for the needs of its 31 million citizens and residents. What are the main challenges and opportunities within the food industry in the kingdom?
The challenge is that we live and operate in a desert. Water scarcity, high temperatures and related environmental conditions all create a challenge. Sadafco’s company philosophy is to provide proteins, minerals and fats within these conditions. These basic elements required for us to survive are produced in this harsh environment through a sustainable business model, which minimizes the use of local water resources in all our processes. For instance, our water usage for a finished liter of milk is just three and a half liters.
Despite our already low usage of local water, we also minimize production losses as much as possible through the re-capture and salvage of waste production. The systems have become so effective that we can monitor the dilution of proteins, fats, etc. in a way that deviations can be corrected for it to re-enter the mainstream thereby guaranteeing reliable quality.
Within this environment it is a challenge and burden on Mother Nature’s resources to keep pumping fresh water for the use of water-intensive industries. It is unlikely that Sadafco will ever go into fresh dairy farming.
Additionally, indefinite and unlimited subsidies are also an obstacle for advancement. They should have a beginning and an end or else you will take away the spirit of trying to do things better. Water wastage is high and it is important to make people aware of this fact. Saudi Arabia is realizing this by starting to reduce subsidies in general.
Economic development and protection of the environment are two demands neither of which should be sacrificed for the sake of the other. Sadafco recently announced an investment of SR2 million in a solar power project at the company’s Regional Distribution Center in Sulay, Riyadh. How can Sadafco meet the needs of this generation without compromising the needs of future ones and how effective is Sadafco’s new power system in terms of cost saving and pollution reduction?
This type of activity or action is my take on social responsibility. Personally, I do not think we as a company should give away a lot of money for the sake of corporate social responsibility. I think it is the shareholder’s responsibility and choice. It is not for me as the CEO to say: “Let me create some PR so I can show the world how great we are.” I am from a different school of thought.
As a company we expect the fuel prices to go up. There are many examples in the region already where it is shown that solar power becomes very competitive. The Solar Energy Project is very important for us. We will learn from it for future developments. At the Riyadh Regional Distribution Center we will be able to generate roughly 40% of our required power from our solar panels during the hottest day. I think that’s nice. That’s learning. We love that.
During 2014/15 the company returned to double-digit growth, reflecting a 16.4% increase in net sales over 2013/14. What would you attribute these results to and how can Sadafco maintain this positive trend in the long-term?
I would say we have been continuously showing double-digit growth for the past seven years. In 2013/14 we did not show double-digit growth as we struggled with some raw materials issues and other challenges beyond our control.
The reason we have double-digit growth is because we focus on what we think is important – that is all. We deviate from the classical trading houses that want a stake in every pie they discover. We have a strong position in drinking milk, tomato paste and ice cream, and that is where our focus is.
We are not interested in being the biggest factory, the biggest farm or the biggest company. We want to strengthen what we are good at and do it even better. Focus on what we are good at and make it profitable. We have to create value for our shareholders with people that enjoy doing their jobs. At the end of the day, the consumers decide if we have done the right job or not. Your consumers are your best referees and if they do not like you, they will let you know.
How do you build a high profile and trusted brand name? Your annual report 2015 states that Saudia stands as a proud “made in Saudi brand” remaining clearly visible in the market and is top of mind for consumers.
It is an established household brand that was born in 1977 and generations have grown up with it. It is always easy to say in hindsight that we could have done better but we have identified key points and are working on them to push the brand recognition further.
One of the best ways to further strengthen our brand is through constant innovation. This is innovation across the value chain – in manufacturing, supply chain, sales and distribution, and, of course, in the products themselves. Our customers realize this and appreciate and enjoy these initiatives.
Regarding product innovation, are you targeting a specific segment of the society?
We are a brand for consumers of both genders and all age groups and through listening we understand well the different propositions that are needed.
An interesting aspect of this region, which can be both a blessing and a challenge, is its diversity. In the company alone we have over 40 nationalities, a good representation that reflects the nature of the country’s population mix. What makes Saudi Arabia different from its neighbors is that the number of Saudi nationals is greater versus expatriates – about two-thirds Saudi (themselves very diverse) and one-third non-Saudi. The entire population needs to be catered for so our target market is diverse and large.
How challenging has it been to seek out local candidates for available positions? What are the company’s Saudization results and what measures have you put in place to increase retention?
This is a challenge for all companies. Speed of progress depends on the quality of available resources and we strive to get the best national talent for our operations. However, the government and the private sector have to work together in order to prepare Saudis for the workforce through education and skills development. We try to provide specific internal training programs because it is not enough just offering jobs, even if candidates come with great qualifications and international degrees and diplomas. We need to instill a productive work ethic across the organization.
We try to recruit people across all disciplines and we are also increasing female involvement in the business. Today we have around 100 motivated women on board, operating the labs, in our offices and packing foodstuff in production lines. They are on the ball and that is good. These relative newcomers to the workforce are appropriately qualified, stable and reliable, and we intend to incorporate as many women as possible within the company in the future.
We are meeting the Saudization targets set by the government. As the company is healthy and showing good growth, it does not mean we always have to send non-Saudis home to make way for Saudis. There is enough space for motivated, hard-working individuals. Unfortunately the highest staff rotation is among Saudis because of the trend in job hopping. We are not only talking about the need for a level of loyalty but also a realization that changing jobs every year or two will give the wrong impression on your CV in future job interviews. Retention is a challenge but I believe it can be improved through education, training programs and, most importantly, by creating a happy atmosphere.
Sadafco celebrates its 40 years of inception in 2016. What is the company’s next frontier and what is your personal vision for the company in the years to come?
In the next five years, we would love to continue on the growth path we have been experiencing over recent years. My vision is simply to keep strengthening our brand by creating value for our consumers. We intend to double our profitability with a consumer-centric approach because our ultimate goal is for more and more consumers to say that they love our brand. We are not doing things at any cost – we deliver premium, quality products.
And the success of this company will not be based just on the vision of the CEO – we have more than 2,200 people behind this company and only the joint effort of all of us is making our growth possible.
How would you evaluate the importance of an industrialized and diversified economy for Saudi Arabia’s future growth?
I do not think there is a lot of choice. It is simple – Saudi Arabia is a young economy that is growing fast and it needs diversification to reach its full potential. One of the challenges on this path relates to manpower because in order to grow fast you need to have a selection of appropriate talent, and young economies very often lack the needed expertise. It is important to pay attention to the country’s demographics as well. The Saudi population is large compared to its neighbors but the age breakdown is similar in that about two-thirds of the population are under the age of 30 and, taking future projections into account, it is clear KSA cannot rely only on oil as a source of income.
Oil as a resource is limited and, ultimately, the country needs to have alternative income models.
If you have a young economy with the need for development, you need to encourage an outward looking approach in order to stimulate the injection of global knowledge and technology because it is difficult to only develop from within. We have to learn from the past from countries like Japan, where in the late 19th century they realized the need to change their approach from inward looking. So they decided to diversify and open their doors to the rest of the world. And since then they have developed and achieved great growth. The opening of the Saudi Arabian stock market to foreign investment has therefore been a first, very positive step forward for the kingdom.
To be able to diversify an economy it is essential to have the appropriate feeders of educated workforce in place. The national curriculum needs to be adapted and this can be done without losing national identity and pride. This diversification will take time. We are about 60 years into this process of development and, of course, there will continue to be obstacles, but keeping clear objectives and adapting the process to the needs of the people will bring success.
You also need to pave the road to make it not only interesting to invest and make money outside, but to add value locally by creating, among other things, a motivated and competitive work force. It is a big challenge for Saudi Arabia but they are making serious efforts to facilitate this process.